What is asset finance?

Asset finance is a way for businesses to buy or lease new and used equipment.

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In asset finance an asset is generally considered as something that is tangible, identifiable and removable.  Examples include cars, commercial vehicles, plant and machinery, agricultural and industrial machines or office equipment.

If the finance arrangement is for a purchase, it is essentially a loan for which the security is the item purchased, which the lender can then take back if loan payments are not kept up. In some cases further security may be required, such as a guarantee.

Similarly, with a leasing arrangement the item being leased can be re-possessed if payments are not kept up.

When would a business consider asset finance?

A business may be at the point where it is ready to expand and needs more equipment or it may need to replace old or out-dated equipment which is becoming too costly to maintain or no longer meets current production needs.

Having access to the latest equipment can be important to a business’ ability to provide goods or services to clients and customers as cost effectively, quickly and to the highest possible standard.

In cases where the equipment, such as a van, is on show the condition of that equipment may also be important to reinforce a company’s image and reputation.

In either case, a business may not have enough free capital available to be able to purchase equipment outright without risking overstretching its resources.

What are the advantages of using asset finance?

It allows a business access to the latest equipment while spreading payments manageably over a defined period of time.

Many finance agreements come with fixed interest rates over the payment period.

The agreement cannot be cancelled as long as payments are kept up to date.

It frees up the overdraft with the company’s bank.

Depending on the type of asset finance agreement, a business may be able to claim the monthly repayments as a business expense and thereby reduce its tax bill.  However, we would always advise a business to check with its accountants as to whether this would apply.